How to Take Advantage of the Solar Energy Tax Credit

The U.S. Congress recently passed legislation that grants businesses a 30% tax credit for the purchase of solar equipment. The tax break is in addition to the 30% investment tax credit that was passed in last year’s tax reduction legislation. The new tax credit is referred to as the solar energy tax exemption, and it is retroactive to 2012.

Who Benefits From This Tax Credit?

If you’re reading this, it’s probably safe to assume that you already know the benefits of going green with your energy use. Cutting back on your energy bills and taking care of the environment are among the top priorities of most people today. Congress recognized these benefits and granted businesses that purchase or install solar equipment a tax break.

The solar energy tax exemption will benefit certain industries in particular, such as solar panel manufacturing and installation, according to a report from the Solar Energy Industries Association (SEIA). Some of the larger companies in these industries can benefit from purchasing equipment in larger quantities, which results in cheaper overall pricing for clients. This is because large companies can negotiate better prices and make bulk purchases with credit cards that offer substantial tax benefits.

How Much Can You Save With This Tax Break?

Based on your annual income and the size of your company, you can determine how much you’ll need to invest to take advantage of the solar energy tax credit. The SEIA report states that if your company earns less than $130,000 per year, you’ll need to make an initial investment of $12,000-$38,000 in solar equipment, depending on the size of your company. For example, a medium-sized company with 25 employees will need to spend between $50,000-$75,000 on their initial investment in solar equipment and ongoing operating costs (such as utilities), as well as tax benefits from the federal government.

You’ll receive a certificate from the IRS, which you can use to claim the tax credit on your next tax return. This credit will reduce your annual income taxes by 30%, which is a significant amount of savings. Depending on how much you invest in solar equipment, you can expect to save $5,000-$14,000 per year. If you’re in the 27% tax bracket, that’s a $14,000-$28,000 savings per year. If you’re in the 15% tax bracket, you’re looking at a $28,000-$56,000 savings per year.

When Do You Pay Off The Investment?

The good news is that you don’t immediately have to pay off your investment in solar equipment. According to the IRS, you can take advantage of the solar energy tax credit in the following ways:

  • For newly purchased equipment
  • For equipment you’ve had for more than a year
  • For equipment installed in 2017
  • For other write-offs (e.g., shipping)
  • In conjunction with the purchase of another piece of property
  • Permanently setting up an energy efficiency program (e.g., lighting and heating systems)
  • As a partial payment for another business deal

Where Do You Get The Money To Invest In Solar Equipment?

You don’t need to worry about running out of money to invest in solar equipment because there are various financing options available to businesses and individuals who want to utilize this credit. While you might be able to get a loan from a bank, you can also look into other debt or equity financing options that might be available from private lenders or venture capital firms. Keep in mind that these firms might want to see some sort of stable income stream in the near future.

The Downsides To This Tax Credit

The tax credit isn’t without its downsides, however. As previously mentioned, you’ll need to make an initial investment of between $12,000 and $38,000 in order to claim this credit. Another downside is the fact that you won’t be able to claim this credit if you have an existing solar energy system or equipment that you acquired before 2012. This legislation only covers new systems and equipment that are purchased or installed after 2012. Lastly, this credit won’t cover the cost of labor in the installation of solar equipment. You’ll need to pay a professional labor firm for their services.

To avoid the downsides of this credit, you might want to consider alternative sources of energy or simply buying energy-efficient appliances and electronics. The savings from these alternative sources of energy might not be enough to cover the expense of an initial investment in solar energy equipment, but it’s something to consider. If you do own a business that is capable of generating its own renewable energy, such as through solar or wind power, you might be able to take advantage of this legislation due to the tax credit and investment tax credit combined. This is a unique opportunity for businesses that can truly benefit from going green with their energy use.

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